Don't let it get away!

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the worst...As the trading week winds down to a close, it seems at least one analyst has found time to dig up a final few recommendations for its customers. On Friday morning, Avian Securities announced a series of new ratings in the mobile-computing chip maker industry.

Should we care? I mean, Avian isn't exactly the sharpest Santoku in the knife block. According to our CAPS records, over the past four years that it's been making public recommendations, Avian has only managed to beat the market on about 46% of its picks. Then again, on those rare occasions when this analyst is right, it has beaten the market with a stick. Overall and across its spotty track record, Avian is still sporting a record of 19 percentage-point outperformance on its recommendations (thanks largely to one whopper of a winner, Acme Packet).

Also contributing to my curiosity this week, I noticed that one of Avian's chosen stocks is a stock that I myself praised just a few days ago -- cellphone semiconductor star SkyworksSolutions (Nasdaq: SWKS) . So I ask that you indulge my curiosity as we put Avian through its paces and see how its latest recommendations stack up.

Let's go to the tapeSurveying the field of cellphone chip makers, Avian pronounced itself positive on Avago Tech (Nasdaq: AVGO) and Skyworks, but only neutral on Kopin (Nasdaq: KOPN) , RF Micro Devices (Nasdaq: RFMD) , and TriQuint Semiconductor (Nasdaq: TQNT) . Here's how these stocks rank when valued on a traditional price-to-earnings ratio, relative to growth prospects, and further quality-tested by comparing their reported earnings to actual free cash flows:

Company

P/E Ratio

Growth Rate

Free Cash Flow (as a % of net income)

Avago

16.6

11.7%

120%

Skyworks

22.0

15.5%

136%

Kopin

28.3

20.0%

88%

RF Micro

36.8

13.9%

260%

TriQuint

23.8

6.5%

N/A*

*TriQuint has not released details on its 2011 free cash flow -- but at last report, it was running deeply in the red through the first three quarters of the year.

From a plain-vanilla PEG perspective, you'd probably think none of these stocks looks particularly attractive. Avian's two faves in the sector, Avago and Skyworks, come closest to scoring the elusive PEG ratio of 1.0, but both end up about 40% higher than the mark (as indeed does Kopin). RF Micro and TriQuint, in contrast, aren't even in contention.

Valued on their free cash, however, Avian's recommendations start to make more sense. Avago, for example, sports only a 13.2 price-to-free cash flow ratio, quite a bit cheaper than its 16.6 P/E. The stock is even cheaper once you net out its $823 million bank account, and also even pays a tidy 1.3% dividend yield. All in all, a fair price.

Skyworks looks even better. With $304 million in trailing free cash flow, its resulting 16 times P/FCF ratio aligns nicely with a growth rate that also rounds up to 16%. Plus, Skyworks has more than $420 million in cash to its credit. Again, a nice bargain -- not as nice as it was a couple of months ago, granted, but fairly priced regardless.

Bonus pickIf I might differ with Avian on one point, however, it's that I'm not so certain RF Micro Devices deserves to be left out in the cold here. Certainly, its sky-high 37 P/E ratio is scary. But free cash flow at the chip maker remains strong. With a 14 P/FCF ratio to its credit, more than $135 million in cash, and a growth rate pegged at nearly 14% by the rest of Wall Street, RF Micro is a value fully as good as the two picks Avian actually pointed out this morning.

The Motley Fool owns shares of TriQuint Semiconductor, but Fool contributorRich Smithdoes not own (or short) shares of any company named above.You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 406 out of more than 180,000 members. The Motley Foolhas adisclosure policy.

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As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.
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